Problem 1 - Variance Analysis

Alpha Company uses a standard costing system in their manufacturing facility. The standard and actual data for the last year are presented below. The company expects production to be at their normal capacity of 1,200 units. The company uses machine hours to allocate overhead.

Standard cost per unit:

Direct material

40 Kg ($2.7 per Kg)

Direct labour

8 hours ($18 per hour)

Manufacturing Overhead (40% of overhead is fixed)

$5

Machine hours

1

Actual data for last year is as follows:

Actual variable overhead costs

$3,950

Actual direct labour cost (7,500 hours)

$137,250

Direct material purchased (42,500 Kg)

$118,150

Actual production level

1,050 units

Actual machine hours

1,500

There was no direct material beginning inventory. The ending balance of direct material has 6,500 kg.

Required:(make sure to identify whether each variance is favourable or unfavourable)

a.What is direct material price variance?

b.What is direct material quantity variance

c.What is direct labour efficiency variance?

d.What is variable overhead rate variance

e.What is variable overhead efficiency variance

f.What is fixed overhead volume variance